Rates as of 0500 GMT

Market Recap

Rarely have I seen one currency so dominate the days activity! Most currencies were little changed the tradeweighted indices TWIs for most were 0.1 more or less. Only two exceptions  CAD and USD. And I should point out that USD is 60 of the CAD TWI, while CAD is 25 of the USD TWI, so those movements are going to be mirror images of each other to some degree.

Nor do we have to go searching very far for the reason behind the move. Yesterdays release of Canadas consumer price index CPI was expected to show rising inflation but nothing like what happened! The yearonyear rate of increase jumped from 5.7 to 6.7 a tremendous leap.

The result was that the market brought forward its expectations for Bank of Canada tightening and increased its expectations for the terminal rate the highest rate that it reaches by 25 bps or one rate hike.

Although the FX market wasnt particularly volatile yesterday, amazing things were going on in the bond markets. Bond yields, which jumped on Tuesday, reversed course and fell across the globe, at least at the long end of the market.

This may be because of several reasons

Ahead of the panel discussion later today with Fed Chair Powell and ECB President Lagarde see below
The idea that global central banks are likely to tighten faster than expected, which means future inflation is likely to be lower. See below
The possibility that inflation is peaking.

Market expectations for Fed tightening this…